Bubbles and Market Crashes

Michael Youssefmir, Bernardo Huberman and Tad Hogg

Finance from University Library of Munich, Germany

Abstract: We present a dynamical theory of asset price bubbles that exhibits the appearance of bubbles and their subsequent crashes. We show that when speculative trends dominate over fundamental beliefs, bubbles form, leading to the growth of asset prices away from their fundamental value. This growth makes the system increasingly susceptible to any exogenous shock, thus eventually precipitating a crash. We also present computer experiments which in their aggregate behavior confirm the predictions of the theory.

JEL-codes: G (search for similar items in EconPapers)
Pages: 21 pages
Date: 1994-09-07
Note: 21 pages. Postcript file compressed and uuencoded. Also available via anonymous ftp at ftp://parcftp.xerox.com in the pub/dynamics directory.
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:9409001

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